Domino’s Pizza: Announces Q2 2017 Financial Results

Ann Arbor / MG. (dp) Domino’s Pizza Inc., the recognized world leader in pizza delivery, announced results for the second quarter of 2017, comprised of strong growth in same store sales, global store counts and earnings per share. Domestic same store sales grew 9.5 percent during the quarter versus the year-ago period, which represents the 25th consecutive quarter of positive sales momentum in the Company’s domestic business. International same store sales grew 2.6 percent during the quarter, marking the 94th consecutive quarter of positive international same store sales growth. The Company had global net store growth of 217 stores in the quarter, comprised of 39 net new domestic stores and 178 net new stores internationally. The Company has added 1’281 net new stores over the trailing four quarters.

Diluted EPS was +1.32 USD for the second quarter, which was up 34.7 percent over the Company’s diluted EPS in the prior year quarter. This increase resulted from solid operational results as well as a lower effective tax rate.

During the quarter, the Company’s Board of Directors declared a 46-cent per share quarterly dividend for shareholders of record as of June 15, 2017, which was paid on June 30, 2017.

«It was another outstanding quarter for our domestic business, as brand momentum, strong execution and emphasis on getting better each day continued to drive what we do», said J. Patrick Doyle, Domino’s President and Chief Executive Officer. «While international same store sales growth was slightly under our expectations, we remain very confident in our continued ability to generate best-in-class growth, and are encouraged by the strong store growth we are seeing from our international franchisees».

«As a work-in-progress brand, we will always remain focused on areas we can improve – but I am extremely pleased that our steady strategy, solid fundamentals and strong alignment with franchisees and operators had us well positioned to sustain success and win».

Second Quarter Highlights

(Dollars in millions, except per share data) Q2/2017 Q2/2016 H1-2017 H1-2016
Net income USD 65.7 USD 49.3 USD 128.2 USD 94.7
Weighted average diluted shares 49’776’821 50’459’754 49’741’794 50’846’941
Diluted earnings per share* USD 1.32 USD 0.98 USD 2.58 USD 1.86

In the first quarter of 2017, the Company adopted Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, (ASU 2016-09), which requires the Company to record excess tax benefits from equity-based compensation as a reduction of the provision for income taxes in the income statement, whereas they were previously recognized in equity. See the «Adoption of New Accounting Guidance» section below for additional information.

  • Revenues were up 14.8 percent for the second quarter versus the prior year period, due primarily to higher supply chain revenues from increased volumes. Higher same store sales and store count growth in both our domestic and international markets also contributed to the increase in revenues.
  • Net Income increased 33.5 percent for the second quarter versus the prior year period, primarily driven by an increase in same store sales growth and store count as well as higher supply chain volumes and lower food costs. The adoption of the new equity-based compensation accounting standard also positively impacted net income. These increases were partially offset by higher general and administrative expenses, primarily from investments in technological initiatives, as well as the negative impact of foreign currency exchange rates.
  • Diluted EPS was +1.32 USD for the second quarter versus +0.98 USD in the prior year quarter. This represents a 34-cent or 34.7 percent increase over the prior year quarter. This increase was driven by the increase in net income, as well as lower diluted share count, primarily as a result of the share repurchases made during the trailing four quarters.

The table below outlines certain statistical measures utilized by the Company to analyze its performance. Refer to the Comments on Regulation G section on page three for additional details.

Q2/2017 Q2/2016
Same store sales growth: (versus prior year period)
Domestic Company-owned stores + 11.2 % + 9.1 %
Domestic franchise stores + 9.3 % + 9.8 %
Domestic stores + 9.5 % + 9.7 %
International stores (excluding foreign currency impact) + 2.6 % + 7.1 %
Global retail sales growth: (versus prior year period)
Domestic stores + 12.8 % + 11.8 %
International stores + 10.9 % + 11.5 %
Total + 11.8 % + 11.7 %
Global retail sales growth: (versus prior year period, excluding foreign currency impact)
Domestic stores + 12.8 % + 11.8 %
International stores + 15.2 % + 16.6 %
Total + 14.1 % + 14.3 %

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Store counts: Domestic Company-owned Stores Domestic Franchise Stores Total Domestic Stores International Stores Total
Store count at March 26, 2017 395 5’004 5’399 8’601 14’000
Openings 1 42 43 201 244
Closings (4) (4) (23) (27)
Store count at June 18, 2017 396 5’042 5’438 8’779 14’217
Second quarter 2017 net change 1 38 39 178 217
Trailing four quarters net change 10 183 193 1’088 1’281

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2017 Recapitalization

On July 24, 2017, the Company completed its recapitalization with the receipt of +1.9 billion USD of gross proceeds. The Company borrowed +1.6 billion USD of fixed rate senior secured notes and +300.0 million USD of floating rate senior secured notes and entered into a new +175.0 million USD variable funding note facility, which replaced its previous +125.0 million USD variable funding note facility.

The Company will use a portion of the proceeds from the recapitalization to repay the remaining +910.5 million USD in outstanding principal and interest under its 2012 fixed rate notes on July 27, 2017. The proceeds will also be used to pay transaction-related fees and expenses in connection with the 2017 recapitalization and to pre-fund a portion of the principal and interest payable on the 2017 notes. The Company will use the remaining proceeds for general corporate purposes. For further details, refer to the Company’s separate refinancing press release and the Company’s Form 10-Q for the quarter ended June 18, 2017.

Adoption of New Accounting Guidance

The Company adopted ASU 2016-09 in the first quarter of 2017. This standard addresses the accounting for income taxes and forfeitures and the cash flow presentation of share-based compensation. The adoption resulted in a +10.4 million USD decrease in our second quarter 2017 provision for income taxes, or an 11.8 percentage point decrease in our second quarter 2017 effective tax rate, due to the recognition of excess tax benefits for options exercised and the vesting of equity awards. This item positively impacted our diluted EPS by approximately 21 cents in the second quarter of 2017. Refer to the Company’s Form 10-Q for the quarter ended June 18, 2017 for additional detailed information regarding the impact of the adoption of ASU 2016-09.

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